Australian Securities and Investments Commission v Plymin (No 2)
[2003] VSC 230
•30 June 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 7748 of 2000
| AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION | Plaintiff |
| v | |
| BERNARD HENRY PLYMIN | First Defendant |
| and | |
| JOHN DORMAN ELLIOTT | Second Defendant |
| and | |
| WILLIAM MAXWELL HARRISON | Third Defendant |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 3 - 4 June 2003 | |
DATE OF JUDGMENT: | 30 June 2003 | |
CASE MAY BE CITED AS: | ASIC v Plymin, Elliott & Harrison (No. 2) | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 230 | |
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Corporations – Insolvent trading – Orders against directors in relation to contraventions of civil penalty provision, s.588G, Corporations Law
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N J Young QC with Mr P Crutchfield | ASIC |
| For the First Defendant | Mr N Jones | Wilson & Co |
For the Second Defendant | Mr A Myers QC with Mr R Heath | Tress Cocks Maddox |
For the Third Defendant | Mr O P Holdenson QC with Mr A Young | Phillips Fox |
HIS HONOUR:
Following the handing down of the primary reasons for judgment in this proceeding[1], submissions were heard concerning the matters relating to relief referred to in the concluding paragraphs of that judgment.[2]
[1]ASIC v Plymin, Elliott & Harrison [2003] VSC 123.
[2]ASIC v Plymin, Elliott & Harrison [2003] VSC 123 at paras [570] – [574].
Provisions as to relief
It is convenient first to consider generally the potentially applicable[3] provisions of the Corporations Law as to relief, before turning to the circumstances found in this proceeding.
[3]As to the provisions of the Corporations Law rendered applicable by the Corporations Act 2001 (Cth), see ASIC v Plymin, Elliott & Harrison [2003] VSC 123, paras [316] – [340].
Section 1317JA empowers the Court, in relation to a person who has been found, in any eligible proceeding, to have contravened a civil penalty provision, to relieve that person wholly or partly from any liability if it appears to the Court that:
“(a)the person has acted honestly; and
(b)having regard to all of the circumstances of the case…the person ought fairly to be excused for the contravention.”[4]
[4]Section 1317JA(2).
This is an important provision because, as Bergin J said in Kenna & Brown Pty Ltd v Kenna:[5]
“…although the defences in s.588H may give some appearance of a full elaboration of the circumstances to escape liability, such appearance disappeared with the introduction of s.1317JA which operates concurrently with s.1318: s.1317JA(7).”
[5](1999) 32 ACSR 430, 455.
In Daniels v Anderson, the New South Wales Court of Appeal said[6] of the similar power under s.1318:
“The purpose of the section is to excuse company officers from liability in situations where it would be unjust and oppressive not to do so, recognising that such officers are businessmen and women who act in an environment involving risk and commercial decision-making.”
[6](1995) 37 NSWLR 438, 525.
In order to exercise the power under s.1317JA(2), it must appear to the Court that “the person has acted honestly.”[7] In this proceeding, ASIC was content that the Court should proceed upon the basis that each of the defendant directors had acted honestly and accordingly it is unnecessary to consider that aspect further. The matter of contention was whether “having regard to all the circumstances of the case…the person ought fairly to be excused for the contravention”.[8] The phrase “ought fairly to be excused for the contravention” does not establish an absolute concept of excuse because the Court is empowered to relieve a person “either wholly or partly from a liability to which the person would otherwise be subject…because of the contravention”.[9] The word “excused” in this context thus comprehends both the total removal of blame for the contravention, in the sense of the removal of all of the consequences in liability for the contravention, and the partial extenuation only of that blame and the removal of some only of those consequences. Even if a person “ought fairly to be excused for the contravention” that person may not necessarily be wholly relieved from liability.
[7]Section 1317JA(2)(a).
[8]Section 1317JA(2)(b).
[9]Section 1317JA(2).
The section therefore may operate in relation to all or any of the orders which the Court may make, including a declaration,[10] a prohibition order,[11] a pecuniary penalty order[12] and an order for compensation.[13] If it appears to the Court having regard to all the circumstances of the case that the person ought fairly to be excused for the contravention, the Court is empowered not to subject the person to any liability or to subject the person to some only of the available orders, or perhaps, in some cases, to part only of some liability. For example, in Scott v Williams,[14] Lander J found that a defendant director, who had failed to prevent a company from trading while insolvent, should in the circumstances be partly relieved from liability pursuant to s.1317JA. The partial relief involved was to limit the director’s liability to compensate the company pursuant to s.588M having regard to all the circumstances, including the fact that the other directors had contributed to the loss and damage. Accordingly, the Court relieved the director “of all liability except as to $500,000”.[15]
[10]Section 1317EA(2).
[11]Section 1317EA(3)(a).
[12]Section 1317EA(3)(b).
[13]Section 588J(1).
[14][2002] SASC 424.
[15][2002] SASC 424 at para [1044].
Of course, some of the Court’s powers in terms involve the exercise of a further discretion, both as to the making of the order and the extent thereof.
The matters to be taken into account in relation to the exercise of the power under s.1317JA(2) include any action the person took with a view to appointing an administrator, when that action was taken and the results of that action.[16]
[16]Section 1317JA(3).
The Court has a wide discretion[17] under s.1317JA and the reasonableness of a person’s conduct is a relevant consideration in relation to whether a person ought “fairly” to be excused. [18] The circumstances of the case will include the way in which the breach of duty occurred.[19] The present circumstances of the person concerned may also be relevant in deciding whether to excuse him wholly or partly from liability.[20]
[17]cf: Daniels v Anderson (1995) 37 NSWLR 438, 525.
[18]Kenna & Brown Pty Ltd v Kenna (1999) 32 ACSR 430, 456; cf: Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115, 196; AWA Limited v Daniels (1992) 9 ACSR 383, 402.
[19]Circle Petroleum (Qld) Pty Ltd v Greenslade (1998) 16 ACLC 1577, 1598; Kenna & Brown Pty Ltd v Kenna (1999) 32 ACSR 430, 456.
[20]Kenna & Brown Pty Ltd v Kenna (1999) 32 ACSR 430, 459.
Little need be said about the requirement that the Court make a declaration as to any contravention which has been established (if the person is not otherwise relieved), save that s.1317EA(2) provides that the relevant act or omission must be “specified” in the declaration.
Section 1317EA(3) empowers but does not require the Court in addition to a declaration to make against the person either or both of an order prohibiting the person from managing a corporation (prohibition order) and an order that the person pay to the Commonwealth a pecuniary penalty.
Section 1317EA(3)(a) provides that a prohibition order is to be “for such period as is specified in the order” but the Court is not to make such an order “if it is satisfied that, despite the contravention, the person is a fit and proper person to manage a corporation”.[21] The primary object of a prohibition order is the protection of the public from the misuse of the corporate structure by persons who the Court is not satisfied are fit and proper persons to manage a corporation.[22] As O’Bryan J said in Nicholas v CCA,[23] concerning a corresponding provision in the Companies (Victoria) Code, the section is concerned with a person’s fitness to be a director. The concern was for the present and future protection of the public, to protect the public from persons whose past conduct was, in effect, unsatisfactory and the section was inserted “to protect the public…from persons whose recent past conduct indicates a present lack of fitness to…manage a corporation.”[24] A prohibition order also involves aspects of personal deterrence and general deterrence,[25] but the paramount objective is protection of the public. In Re HIH Insurance Limited; ASIC v Adler & ors[26] Santow J provided a useful set of propositions derived from the decided cases in relation to the purpose of a prohibition order and also in relation to some of the matters which were relevant to the appropriate period of disqualification.
[21]Section 1317EA(4).
[22]Re Tasmanian Spastics Association; ASC v Nandan (1997) 23 ACSR 743; Australian Securities Commission v Donovan (1998) 28 ACSR 583; ASC v Forem-Freeway Enterprises Pty Ltd (1999) 30 ACSR 339; Re HIH Insurance Limited; ASIC v Adler & ors (2002) 42 ACSR 80.
[23](1987) 5 ACLC 258.
[24](1987) 5 ACLC 258, 266.
[25]Re HIH Insurance Limited; ASIC v Adler & ors (2002) 42 ACSR 80, 97 –98.
[26](2002) 42 ACSR 80.
Section 1317EA(3)(b) empowers the Court to make a pecuniary penalty order of a specified amount not exceeding $200,000. The Court is not empowered to make such an order unless it is satisfied that the contravention is a serious one.[27] In ASC v Donovan, Cooper J said that a “serious” contravention meant that the default or neglect which constituted the breach of the requisite duty “must be grave or significant”[28] and he further said that the provision was punitive in character:[29]
“Its purpose in an appropriate case is to punish, but principally imposition of a pecuniary penalty is to act as a personal deterrent and a deterrent to the general public against a repetition of like conduct…the penalty should be no greater than is necessary to achieve its objective.”[30]
[27]Section 1317EA(5).
[28](1998) 28 ACSR 583, 608.
[29]See too Re Tasmanian Spastics Association; ASC v Nandan (1997) 23 ACSR 743; ASIC v Doyle [2002] WASC 223 and cases therein cited.
[30](1998) 28 ACSR 583, 608.
In Re HIH Insurance Limited; ASIC v Adler & ors, Santow J said that it was well established that the principle purpose of the pecuniary penalty was to act as a personal deterrent and as a deterrent to the general public against the repetition of like conduct[31] and he also referred to a number of propositions derived from the cases in relation to factors relevant to be taken into account in making an order and as to the size of the penalty.[32]
[31]Re HIH Insurance Limited; ASIC v Adler & ors (2002) 42 ACSR 80, 114.
[32]Re HIH Insurance Limited; ASIC v Adler & ors (2002) 42 ACSR 80, 114 – 116.
In ASC v Forem-Freeway Enterprises Pty Ltd,[33] Madgwick J said, and I would agree, that where a penalty was sought as well as a prohibition order and a compensation order, it was desirable to deal with the protective and compensatory aspects before the question of a penalty.
[33](1999) 30 ACSR 339, 349 – 350.
Section 588J(1) provides:
“Where, on an application for a civil penalty order against a person in relation to a contravention of section 588G, the Court is satisfied that:
(a)the person committed the contravention in relation to the incurring of a debt by a company; and
(b)the debt is wholly or partly unsecured; and
(c)the person to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency;
the Court may (whether or not it makes an order under subsection 1317EA(3)) order the first-mentioned person to pay to the company compensation equal to the amount of that loss or damage.”
The Court cannot make a compensation order unless the prerequisites set out in sub-ss. (a), (b) and (c) are satisfied but the Court also has a discretion as to whether or not to make such an order at all.[34] What is less clear is whether, apart from any question of relief from liability under s.1317JA, the Court has a discretion to award an amount of compensation less than the amount of the loss or damage. The power is expressed in terms of ordering a person to pay to the company compensation “equal to” the amount of that loss or damage, and it is not clear whether those words permit the Court to order compensation in a lesser amount, particularly in cases where more than one director is involved and, perhaps, the degrees of culpability are different.[35] There is also a question, to which I referred in my previous judgment,[36] whether the correct measure of the loss or damage is the gross amount of the unpaid debt or the unpaid debt less any dividends received.
[34]Re HIH Insurance Limited; ASIC v Adler & ors (2002) 42 ACSR 80, 113 – 114.
[35]I note that in ASC v Forem-Freeway Enterprises Pty Ltd (1999) 30 ACSR 339, at 351, Madgwick J made a compensation order at less than the full possible amount pursuant to s.1317HA(1) – however, that section empowers the Court to “specify the amount of the compensation”.
[36]ASIC v Plymin, Elliott & Harrison [2003] VSC 123, para [535].
Submissions made on behalf of ASIC
It was submitted by ASIC in respect of the first and second defendants that the findings that they had actual knowledge of reasonable grounds for suspecting insolvency under s.588G(2)(a) demonstrated a higher level of culpability than if they had been found only to fall within s.588G(2)(b). It was submitted that the contraventions were serious because the grounds of which they were aware were by 14 September 1999 stark and overwhelming. The first and second defendants were confronted with unmistakable evidence and repeated warnings that Water Wheel was heading towards insolvency in the first half of 1999 and that it was insolvent by 14 September 1999.[37]
[37]Senior Counsel made reference to ASIC v Plymin, Elliott & Harrison [2003] VSC 123, paras [106], [127], [172], [210], [244], [253] – [254], [257], [435] – [437], [442] – [443], [451] – [462], [560].
It was submitted that the relief to be granted against the first and second defendants should reflect the seriousness of the contraventions and that there was no basis for relieving either of the first or second defendants from the consequences of their contraventions because, inter alia, the conduct of each of them was unreasonable. It was submitted that their conduct provided no basis for excusing them from any liability.[38] ASIC submitted that neither of the first or second defendants took any action with a view to appointing an administrator in 1999[39] as might have been expected of a reasonable director. In the case of Mr Plymin, it was submitted that given his detailed knowledge of the financial plight of Water Wheel from at least February 1999, and his inability or refusal to confront the problems in an open manner, his conduct was completely unreasonable. In the case of Mr Elliott, it was submitted that it was not only unreasonable, but irresponsible and completely out of step with the standards expected of directors, for him not to make full and proper inquiries as to Water Wheel’s financial position when he was on notice from at least March 1999 of Water Wheel’s solvency problems and continuing losses and on notice from as early as October 1998 that the information he was receiving from Mr Plymin was manifestly inadequate.
[38]Reference was made to ASIC v Plymin, Elliott & Harrison [2003] VSC 123 at paras [428] – [462] (Mr Plymin) and paras [428] – [450] (Mr Elliott).
[39]For example, at the times mentioned in ASIC v Plymin, Elliott & Harrison [2003] VSC 123 at paras [427], [439] – [443] and [445].
It was submitted that there should be a declaration covering the contraventions by the defendants in respect of each of Mills and Holdings.
ASIC next submitted that there should be a prohibition order in the case of each of the first and second defendants, that the culpability of the first defendant was greater in that he knew more facts and more detail at all relevant times and that that circumstance should be reflected in a longer period of disqualification for Mr Plymin than for Mr Elliott. It was submitted that a substantial prohibition order should be made against Mr Plymin because of a number of factors:
· The contraventions were not constituted by an isolated event but occurred over a period of some 5 months and in circumstances where Mr Plymin had been aware of Water Wheel’s serious financial difficulties for an even longer period.
· There was no indication that Mr Plymin understood how he had failed to fulfil his duties as a director.
· The debts incurred by Water Wheel after 14 September 1999 were substantial.
· The objects of personal and general deterrence.
· In discharging his duties as Managing Director, Mr Plymin lacked reliability and competence.
· Mr Plymin demonstrated an inappropriate and cavalier attitude toward the incurring of debts and the payment of creditors.
It was submitted, therefore, that in order to protect people who might in the future deal with companies of which Mr Plymin might otherwise be a director, he should be prohibited from managing a company for a period in the range of 7 to 10 years. It was added that there was still in the material filed on behalf of Mr Plymin no real acceptance and recognition of the very serious respects in which he failed to fulfil his duties as a director. There was still no explanation of why he was so cavalier in dealing with creditors, and why he failed to address concerns raised by such people as Nankervis, Calvert-Jones, the ANZ Bank, ASIC and the auditors. There would be a real danger to the public in allowing Mr Plymin to resume the role of a director of a company.
ASIC then submitted that the following circumstances justified a substantial prohibition order against Mr Elliott:
· The fact that, despite his awareness of the numerous reasonable grounds for suspecting insolvency, he turned a blind eye to Water Wheel’s financial difficulties.[40]
· The contraventions were not constituted by an isolated event, but occurred over some 5 months in circumstances where Mr Elliott knew that Water Wheel was, at least, in serious financial difficulty for an even longer period.
· Mr Elliott had displayed no contrition or remorse for his conduct and there was no indication that he understood, even now, how he failed to fulfil his duties as a director.
· There was no credible indication that Mr Elliott was likely to reform his approach to the office of a company director.
· The debts incurred by Water Wheel after 14 September 1999 were substantial.
· The objects of personal and general deterrence.
[40]ASIC v Plymin, Elliott & Harrison [2003] VSC 123 at para [560].
It was submitted, therefore, in relation to Mr Elliott that an appropriate period of prohibition would be in the range of 5 to 7 years in order to reflect the seriousness of the contraventions and the attitude displayed over a lengthy period of time to the discharge of his duties as an officer of Water Wheel. Reference was made to the fact that the Court had not been satisfied that at any time on and after 14 September 1999 Mr Elliott expected that by continuing to trade, Water Wheel was or would be able to pay its debts as and when they fell due. It was submitted that the evidence (including Mr Elliott’s own evidence), and the findings made, showed that Mr Elliott had no proper grasp of what was required of a director of a trading company and afforded no basis upon which it could be confidently expected that in future he would adequately discharge the office of a company director. His new evidence by affidavit contrasted with the evidence given in the witness box in respect of which the Court had found that he evaded answering difficult questions, gave explanations which were unacceptable about his recognition or appreciation of the dire financial position of the company and in which he dismissed various indications of insolvency.[41] It was submitted that the evidence provided no credible indication that Mr Elliott was likely to reform his approach to the office of being a company director, nor, at least when he was in the witness box, did he indicate any recognition of the ways in which he had failed to discharge his duties, or any contrition or remorse for the creditors who had been left unpaid whilst Water Wheel traded insolvently.
[41]Reference was made by Senior Counsel to ASIC v Plymin, Elliott & Harrison [2003] VSC 123 paras [66], [85] – [86], [116], [128], [200], [210], [240], [244], [254], [256] and [297].
In relation to pecuniary penalties, it was submitted that the contraventions by each of the defendants were serious and so the Court had power to make an appropriate order. Although the incurring of each debt might be regarded as a separate contravention, the penalty should be approached on the basis that there was a single course of conduct in respect of each of Mills and Holdings. The principal reason for the imposition of a penalty was that of personal and general deterrence, but that had to be balanced against the effects of any prohibition order and capacity to pay and any hardship should be taken into account. It was submitted that none of the material really established what was the capacity to pay of each of the first and second defendants. It was submitted that an appropriate level of penalty in the case of Mr Plymin was $120,000 in respect of each of Mills and Holdings and in the case of Mr Elliott, $100,000 in respect of each of Mills and Holdings.
In relation to compensation, ASIC accepted that there was some interplay between compensation orders and penalty orders and submitted that if there was a limited capacity to pay, the preferred course was to require payment pursuant to a compensation order rather than a penalty order.
Senior Counsel for ASIC referred to the fact that the third defendant, Mr Harrison, had consented to a compensation order being made against him up to the sum of $300,000 and had provided that sum to ASIC which ASIC held on trust for distribution in accordance with the Court’s orders. It was submitted that any compensation order made against the first and second defendants should take into account the amount already available from Mr Harrison in so far as taken up by a compensation order against him.
It was submitted that a compensation order should be made against each of the first and second defendants, jointly and severally, in the amount of the proven loss and damage, being the amount of the unpaid debts of the relevant creditors as found by the Court less the dividends received or likely to be received by those creditors.
As to costs, it was submitted that there should be an order for costs against the first and second defendants.
Joint submissions made on behalf of ASIC and the third defendant (Mr Harrison)
The third defendant, Mr Harrison, swore an affidavit dated 22 May 2003. He deposed that he was 67 years of age and retired from practice as a chartered accountant. From 1953 to 1967 he had been employed as an accountant by a series of firms and in 1967 he had become a partner in a firm of accountants. He continued as a partner until about 1984 when he commenced an accounting practice as a sole practitioner, and so continued until about the year 2000, when he retired from practice.
Mr Harrison deposed that he was a director of Associated Broadcasting Services Limited from about 1978 to about 1995 and a member of the Freemasons’ Hospital Board from 1985 to 1994, being Chairman from about 1990 onwards. He retired from that Board in about December 2000. In November 1987 he became a director of Mills and Holdings and Chairman of their Boards in 1995. He was also a director of Healthscope Limited from about 1996 to February 2001.
Mr Harrison swore that the net value of his assets did not exceed $330,000 and that that sum included a fund of $300,000 held by ASIC as trustee for him pending the making of final orders in this proceeding.
Mr Harrison said that from 1953 until the present, he had not been the subject of any investigation, complaint, disciplinary proceeding or any other proceeding in relation to his conduct as an accountant or as a company director. He said that discussions with a view to reaching an agreement with ASIC concerning this proceeding were commenced in or about May 2002 and concluded in October 2002 (in the manner referred to below). Mr Harrison swore that he deeply regretted that his conduct as a director of Water Wheel “may have been a cause of losses suffered by creditors” and said that he was “most ashamed that by my conduct I have contravened provisions of the Corporations Law”. He added that although he did not propose ever again to be a company director, he joined in ASIC’s submission that he should for a period be disqualified from managing a corporation.
I note that Mr Harrison had agreed with the plaintiff that he would not, after 7 October 2002, contest the case and on that date he filed a defence admitting all of the allegations contained in ASIC’s statement of claim. Joint written submissions were filed on behalf of ASIC and Mr Harrison
In the joint submissions, Mr Harrison consented to the making of declarations in agreed terms as to his contraventions. Mr Harrison admitted all of the facts contained in the plaintiff’s written opening statement, subject to the second sentence of paragraph 265 of the written opening statement being amended so that it referred to “actual awareness of reasonable grounds for suspecting insolvency” in lieu of the reference to “actual awareness of insolvency”.
It was conceded by ASIC and Mr Harrison that although the Court was entitled to have regard to, and adopt, the settlement between them, ultimately the imposition of penalties was a matter for the Court.[42]
[42]See ACCC v Colgate Palmolive Pty Ltd [2002] FCA 619 at [35]; ACCC v ABB Transmission and Distribution Limited (2001) ATPR ¶41-815 at 42,935-6.
It was submitted that although the conditions for the making of a compensation order had been met, the relief was discretionary.[43] It was submitted that the Court had a discretion under s.588J to make orders for several liability and that the order in respect of Mr Harrison should take into account, inter alia, his culpability and role in the conduct, his contrition and remorse in respect of the consequences thereof and his preparedness to cooperate with the plaintiff (including the consequent saving of the time and cost of a more prolonged trial).
[43]See Re HIH Insurance Limited; ASIC v Adler (2002) 42 ACSR 80; ASIC v Plymin, Elliott & Harrison [2003] VSC 123 at [571].
ASIC and Mr Harrison agreed that the appropriate amount of compensation to be paid by Mr Harrison was $300,000, such amount to be divided pro rata as between Mills and Holdings according to the amount of loss and damage suffered by their respective creditors. It was further agreed that if any penalty was ordered, the amount of compensation should be reduced by the amount of the penalty so that the third defendant should not in any circumstances be required to pay more than an aggregate sum of $300,000 to satisfy the orders of the Court and pay ASIC’s costs.
It was submitted that the Court had the power to make orders for compensation at less than the full amount of the proved loss and damage and differential orders as between defendant directors. It was submitted, at any rate, that there was no warrant for reading an “all-or-nothing” requirement into the section where the parties have agreed otherwise.
The joint submission said that the plaintiff sought the imposition of a pecuniary penalty and that Mr Harrison’s contraventions were serious, but that the factor of personal deterrence was of little relevance given Mr Harrison’s age and his stated intention not to act again as a company director. It was submitted that, in all the circumstances, the appropriate range for a pecuniary penalty was between $50,000 and $100,000 in respect of all of the contraventions.
In relation to a prohibition order, the parties submitted that an appropriate period of prohibition was in the range of 4 to 6 years, but that the Court should order a period in the lower end of this range.
As to costs, Senior Counsel for ASIC said that it would not enforce any order as to costs against Mr Harrison if his liability were to exceed $300,000, but that it might be appropriate to make an order for costs against him simply leaving it to the agreement between him and ASIC as to “non-execution”.
The evidence of Mr Brooke
The parties have all proceeded upon the basis that, if there was any loss and damage at all, the measure of such “loss and damage” for the purposes of s.588J(1) was the amount of the unpaid debts incurred in the relevant period less any dividends paid or expected to be paid to the relevant creditors under the deeds of arrangement.[44] In relation to Mills, the previous evidence of Mr Brooke was that he had paid a dividend to creditors of 10 cents in the dollar and expected to pay a further dividend which he estimated at up to 4.5 cents in the dollar. In relation to Holdings, Mr Brooke’s previous evidence was that he expected to pay a dividend to creditors which he estimated at 32 cents in the dollar.
[44]See ASIC v Plymin, Elliott & Harrison [2003] VSC 123, paras [469] – [470], [535], [539].
By an affidavit of 2 June 2003 and a further affidavit of 23 June 2003, Mr Brooke has deposed that, of the total value of proofs of debt lodged in respect of Holdings ($8,787,444), he has admitted debts in the sum of $1,504,883, and that, of the total value of proofs of debt lodged in respect of Mills ($23,743,752), he has admitted debts in the sum of $18,479,637. The admitted amount includes a debt to Holdings, by way of inter-company loan, of $10,886,448.57.
Mr Brooke has further deposed that his best estimate of further distributions to creditors was not more than 4.5 cents in the dollar for creditors of Mills and not more than 92 cents in the dollar for creditors of Holdings.[45]
[45]Mr Brooke said that the reason for the expected increase in the dividend to unsecured creditors of Holdings was that he had settled a matter between Water Wheel and Vicgrain which had substantially reduced Vicgrain’s claims.
In cross-examination, Mr Brooke confirmed that under the deeds of arrangement the directors and their associates had agreed not to prove for a dividend and had waived any entitlement in relation to debts owed to them. The amounts involved were not mentioned. Mr Brooke also said that Mr Elliott had assisted and cooperated with the administrators.
Mr Brooke said that he had not made up his mind about whether to sue the auditors of Water Wheel. Whether he had “standing” to pursue the auditors and whether there were any grounds to pursue them were matters still under consideration between himself and his solicitors, Mr Brooke said. I should say at once that I do not think that this evidence takes the matter any further than was referred to in the primary judgment.[46] I do not think that the mere possibility of a proceeding against the auditors is a ground for deferring the making of any order as to compensation, if such an order should otherwise be made.
[46]See ASIC v Plymin, Elliott & Harrison [2003] VSC 123, para [541].
Mr Brooke’s evidence shows that, after the payment to creditors of the expected maximum further dividends (including a dividend to Holdings from Mills in respect of the inter-company loan), there will remain a deficiency for unsecured creditors of Water Wheel as follows:
Holdings
$120,390.61
Mills
$15,800,089.79
TOTAL
$15,920,480.40
Included in the deficiency of Mills is the inter-company loan, most of which originated in an equity raising by Holdings, the proceeds of which were advanced by Holdings to Mills. I take into account that, excluding the inter-company loan, the Water Wheel deficiencies will be reduced to approximately $6.6M.
Additional evidence tendered and submissions made on behalf the first defendant (Mr Plymin)
The first defendant swore an affidavit dated 21 May 2003 which may be summarised as follows. Mr Plymin is aged 52, having been born on 7 April 1951. He completed a Diploma of Business Administration (Accounting) at Preston Institute of Technology in 1971, after which he worked for about one year with the Australian Taxation Office. In 1973, he commenced employment with Henry Jones IXL (Australian Canned Food Division) as an assistant to the accountant, and in 1977, he was appointed National Financial Accountant. About one year later, he was transferred to an associated company called Kyabram Preserving Company Limited as the General Manager, Finance and Administration and as Company Secretary. In 1982, he was transferred to an associated company in South Africa as Commercial Manager, and about a year later, he returned to Australia and continued working in the Elders IXL Group. From 1984 to 1986 he was an Executive Director of Elders Grain Limited. In September 1986 he left Elders and joined Goodman Fielder Watty Limited. Until November 1993, he was Group Commercial Manager of Goodman Fielder’s Baking Division and also a director of a number of subsidiary companies. From 1994 to 1997, he was Managing Director of Ferrari Formal Wear. In May 1997, he commenced working as Managing Director of Water Wheel and remained in that position until his employment was terminated on 30 June 2000. Since 30 June 2000, he has not been in full-time employment but has been assisting the administrator of Water Wheel and “working for a small private company”.
Mr Plymin deposed that after the appointment of the administrator he was requested and agreed to assist the administrator. This he did at the same salary as previously until 30 June 2000, after which he continued for about three months on a full-time contract basis and thereafter for about 2 to 3 days a week until December 2000. He assisted the administrator in relation to the proofs of debt and in the preparation of statutory accounts. After December 2000, he continued to assist the administrator as required. Mr Plymin said that he agreed to assist the administrator because “I wanted to provide as much assistance as I could to ensure that the creditors of Water Wheel were paid”.
Mr Plymin said that as a result of the insolvency of Water Wheel and this proceeding (and the surrounding publicity), he anticipated that he would never again be able to gain employment in a senior position and that it might be difficult for him to obtain a position at all in the finance and accounting area. For that reason, he has decided to establish his own accounting practice which it will take some time for him to develop. Mr Plymin said that he had suffered severe financial loss as a result of “the situation with Water Wheel” and he specified that he had suffered a substantial reduction in income, which he expected to continue. He added that he had paid legal fees of approximately $160,000 since the administration of Water Wheel. Mr Plymin did not disclose the source of payment for those legal fees nor did he disclose his assets or liabilities. Mr Plymin went on to refer to the substantial stress which he, his wife and family had suffered as a result of the administration of Water Wheel and this proceeding, and to the substantial damage to his reputation and standing in the business community “especially with the amount of publicity that this case has received”. He expressed his deep regret “that the creditors of Water Wheel have suffered loss as has been found by the Court”.
Mr Plymin deposed that he had tried to perform his duties as Managing Director of Water Wheel to the best of his ability and that up until the time that the administrator was called in, he believed that Water Wheel was solvent. He said that it was not his intention to cause loss to any of the creditors of Water Wheel. He added that in fact the amount of the creditors had decreased between 3 June 1999 and 3 December 1999 by approximately $1.5M. The latter statement is, at least in part, misleading because, as the evidence showed, it does not take into account the substantial increase in the off-balance sheet finance debt during the same period.
Mr Plymin then deposed that the Board of Directors of Water Wheel had at various times taken advice from external advisers on the issue of solvency, including Charles Rosedale of Clayton Utz and Simon Wallace-Smith of Deloittes. However, I note that Mr Plymin did not set out what that advice was and evidence was never led in this proceeding to enlighten the Court as to the content of such advices.
An affidavit of Geoffrey Frederick Lord sworn 2 June 2003 was filed on behalf of Mr Plymin. Mr Lord is a company director who has been involved in Australian business for many years, commencing in the early 1970s, and was a director of Elders Resources Limited. He currently manages his own private business interests which including a number of proprietary companies. Mr Lord deposed that he has known Mr Plymin since about 1974 when they both worked for Henry Jones IXL Limited and subsequently asked Mr Plymin to be the Managing Director of his company Ferrari Formal Wear Australia Pty Ltd where Mr Plymin remained until 1997. Mr Lord said that in the time that he had known Mr Plymin, he had formed the opinion that he was hardworking, conscientious and highly ethical in his dealings and that he was extremely professional in the way he approached matters.
Whereas Mr Plymin was not represented at the initial hearing, on this occasion his solicitors provided written submissions which were supplemented by oral submissions by Counsel who appeared on his behalf.
Counsel for Mr Plymin orally applied for relief pursuant to s.1317JA of the Corporations Law and I agreed to entertain that application, although it appeared that it had not been made earlier, either by way of Mr Plymin’s defence or otherwise. Counsel spoke briefly to the written submissions. Counsel emphasised the impact of a substantial disqualification period upon Mr Plymin, having regard to his age and a number of other factors which were also referred to in the written submissions, including his financial position, although Counsel conceded that his affidavit said nothing about his asset position.
It was submitted in writing on Mr Plymin’s behalf that a prohibition order should not be made against him, but that if such an order was made, a number of factors should be taken into account in determining the period of disqualification. The factors which were stressed were that the Board including himself had appointed the administrator, that he had provided substantial assistance to the administrator, that there was no finding of dishonesty against him, that there had been no finding that he had profited from the relevant contraventions and that the Board had used professional advisers on the issue of solvency, including Deloittes and Charles Rosedale of Clayton Utz. Other factors which were referred to were his prior good employment record at senior levels, his good character, his expression of regret at the losses suffered by creditors, his loss of employment and income, his substantial legal costs and loss of future employment prospects and the publicity and media attention which “operates as a penalty in itself”. The foregoing factors were also relied upon in relation to compensation and pecuniary penalties. It was submitted that there was no evidence of any likelihood that Mr Plymin would engage in similar conduct in the future and that, in any event, he was unlikely to gain employment in a similar position. It was argued that the imposition of a substantial prohibition order might make it even more difficult for him to gain employment or to earn a livelihood. I do not mention all of the factors that were stated, but I have taken them all into account. It was contended that “even in the lowest category of disqualification period the first defendant should be at the lower end of the scale”.
It was submitted that the Court was unable to order compensation because the extent of the loss was not known and could not be ascertained. The administration of the companies was still proceeding and until the losses could be determined with certainty, no compensation order should be made.
In relation to a pecuniary penalty order, in addition to the factors already mentioned, it was submitted that any prohibition order or compensation order should be taken into account in considering the amount of any penalty, and that it was not appropriate to order a pecuniary penalty if compensation and a period of disqualification was ordered. Finally, it was submitted that no order for costs should be made against the first defendant should be made, particularly if an order was made for compensation or pecuniary penalty.
Additional evidence tendered on behalf the second defendant (Mr Elliott)
A number of affidavits were filed on behalf of the second defendant, Mr Elliott.
Sir Roderick Carnegie, a very experienced company director in both executive and non-executive capacities, deposed that he had known Mr Elliott for a long time and that over the past 30 years he had had constant personal and business contact with him. Mr Elliott was working for him for 3 to 4 years prior to 1971. During the time Sir Roderick had known Mr Elliott, he had participated in a number of commercial transactions with Mr Elliott. He sat with Mr Elliott on the Board of the Business Council of Australia from its inception to approximately 1988. He had always found Mr Elliott to be an energetic and enthusiastic businessman and an honest and trusted colleague. From his personal observation and experience, Mr Elliott was appreciative of his legal obligations in ensuring that the companies of which he was a director complied with their legal obligations. He said that Mr Elliott always contributed to business decisions being made by any Board or Committee of which he was a member and that Mr Elliott was always diligent in asking questions and making inquiries of other members of the Board or Committee. Sir Roderick said that he believed that Mr Elliott placed considerable trust in people around him, including those people whom he relied upon to conduct his various businesses. He said that he believed that Mr Elliott had made and would continue to make significant contributions to all Boards on which he sat, given his substantial expertise as a director and his substantial knowledge of the primary and mining industry sectors in Australia.
Mr Sidney Baillieu Myer deposed that he had been a director of a number of private companies and organisations and a director, both in an executive and non-executive capacity of a number of listed companies, including Myer Emporium Limited (1955-1986 – Chairman from 1978–1986), Coles Myer Ltd (1986–1994) and Elders IXL Limited (1972–1990). He deposed that he first met Mr Elliott in 1972 when Sir Roderick Carnegie introduced them. Both he and Sir Roderick invested funds in the acquisition of Henry Jones IXL Limited (subsequently Elders IXL Limited), and he sat on the Board with Mr Elliott from 1972 until 1990. He also sat on the Board of National Mutual Life Association Limited of which Mr Elliott was a non-executive director for a period and of which he was also a director from 1978 to 1992 (and Chairman from 1988 to 1992).
Mr Myer said that he had therefore sat with Mr Elliott on a great number of Board Meetings where Mr Elliott had acted either as an executive director, a non-executive director or as Chairman, and that at all times, he had found Mr Elliott to be an insightful and intelligent business person who had made significant contributions both as an executive and non-executive director and as an active contributor and tireless worker in Board Meetings. Mr Myer said that he had observed that Mr Elliott had always appraised himself of the financial and operational circumstances of the companies of which he was a director and always appeared to have read his Board papers and paid close attention to the matters set out therein and the matters discussed at Board Meetings. Mr Myer deposed that, as a non-executive director, Mr Elliott had always been proactive in making inquiries of management as to the financial and operational performance of the company. He observed this at National Mutual. He also found that Mr Elliott placed significant trust in the executive members of the Board to advise him as to the financial and operational affairs of the company and in their implementation of Board decisions. He had remained in constant contact with Mr Elliott as a friend. Mr Elliott had always demonstrated that he was prudent and would obtain legal advice where appropriate. Mr Myer concluded that in his view, “Mr Elliott is not the type of person who would allow a company to trade without paying creditors and if he were prevented from being a director it would be a substantial loss to the Boards on which he sits”. Mr Myer’s evidence related primarily to his experience and observations up to about 1992.
Senator Richard Alston deposed that he had known Mr Elliott for more than 30 years and referred to Mr Elliott’s contributions to the Liberal Party and to political and community interests. His evidence went mainly to a period up to about the mid-1980s.
Mr Gary Cordell Morgan said that he had been since 1985 the Executive Chairman of Roy Morgan Research Centre Pty Ltd, and since 1992 the Chairman of a number of mining companies, including Haoma Mining NL, a listed public company of which Mr Elliott has also been a director since 1992. Mr Morgan said that he had known Mr Elliott since approximately 1960 when they were both students at the University of Melbourne enrolled in the Bachelor of Commerce degree. Their professional relationship developed in the early 1980s when Roy Morgan Research commenced providing marketing research services to Elders IXL Limited. In the late 1980s, Mr Morgan asked Mr Elliott to become the Chairman of the Committee of Melbourne on which committee Mr Elliott contributed greatly to a number of important projects.
Mr Morgan said that as a director of Haoma he had been in regular contact with Mr Elliott, attending Board Meetings approximately once every three months and speaking several times a week. He said that he had come to know Mr Elliott very well both in a personal and a professional capacity. Mr Morgan referred briefly to Haoma’s mining business and its financial results. He said that Mr Elliott had contributed substantially in his capacity as a non-executive director to the success of Haoma. During some trying times, Mr Elliott had continued to ask difficult questions about the company’s financial position and he demonstrated a keen awareness of his duties to the company and those who had dealings with it. He contributed important knowledge about the mining industry, he made valuable contributions at all Board Meetings and was also a member of the audit committee “which involves him carefully scrutinising the financial performance of the company”. Mr Morgan referred to Mr Elliott’s sound knowledge of his duties as a director and his diligence in asking questions and reviewing papers provided to him. Mr Morgan said that he had read and considered extracts from the judgment concerning Mr Elliott and making findings about Mr Elliott’s conduct as a non-executive director of Water Wheel.
Mr Elliott swore an affidavit dated 2 June 2003. Mr Elliott deposed that he matriculated in 1958 and then completed a Bachelor of Commerce with Honours at Melbourne University and in 1965, a Master of Business Administration at Melbourne University, coming second in the class. He then spent 6 years with McKinsey & Company Inc (management consultants), during which time he acquired substantial knowledge and expertise in dealing with senior management problems and a detailed understanding of the primary industry and mining sectors. In or about 1972, he organised a consortium which acquired Henry Jones IXL Limited and reconstructed, redeveloped and expanded its business. In late 1981, that company was acquired by Elders Smith Goldsborough Mort to become Elders IXL. Mr Elliott became Managing Director of Elders. In 1982, Elders purchased Carlton and United Breweries. By 1984, Elders was a company with a turnover of $5.6 billion and net income of $68M. In November 1985, Mr Elliott became Chairman and Chief Executive of Elders IXL. By 1989, following international expansion, the business of Elders IXL and its profits had again significantly increased. The total assets managed were over $10 billion and the group had in excess of 20,000 employees. Mr Elliott continued as Chairman of Elders until 1990 and was a director until 1992. Mr Elliott’s affidavit makes no reference to the history of himself in relation to Elders or of Elders itself after 1989, save to say that following his retirement from Elders as an executive in 1990, he turned his attention to the management of various family businesses.
Mr Elliott’s affidavit detailed his active participation in and substantial contribution to a number of trade, community, political and sporting organisations.
Mr Elliott deposed that he was a director of the following companies: Haoma Mining NL Limited, a listed public company (non-executive director); KMN Limited, an unlisted public company (Chairman); Xacon Pty Ltd (Chairman); Australian Rice Holdings Pty Ltd (Chairman); Ebek Pty Ltd (Chairman and chief executive); Australian Product Traders Pty Ltd (Chairman and chief executive); Butt-Out Australia Pty Ltd (Chairman); Koshihikari Sushi Pty Ltd (Chairman) and Australian Portfolio Investments Pty Ltd (Chairman). He further deposed that he had in the past been a director of a number of public companies, including Elders IXL Limited and related companies from 1972 to 1991, National Mutual Life Australasia Limited from 1977 to 1991 (non-executive director) and BHP Limited (non-executive director) from 1986 to 1989.
Mr Elliott said that he had read and considered the judgment in this proceeding in its entirety. He deposed that, having read the judgment, and as a non-executive director of Haoma, he understood that he had a number of obligations (which were listed in the affidavit) to that company and others who dealt with it. He then deposed that as Chairman and/or the Chief Executive Officer of the various companies to which he had referred, he understood that he had a number of obligations (which again were listed in the affidavit) to those companies and others who dealt with them. He said that he would do his best to discharge these responsibilities and added:
“Moreover, I will do my best to ensure that such things as befell [Water Wheel] will not befall the companies of which I am (or may become) a director. I regret the loss occasioned to the creditors of [Water Wheel] found to have been suffered when those companies became insolvent whilst I was a director.”
Mr Elliott’s affidavit sets out the trust structure of his “various family businesses”. By a deed of settlement dated 14 September 1972, “The John Dorman Elliott Trust Fund” (“the Elliott Trust”) was created with Mr Elliott as Trustee and Appointor and his children and wife or widow as specified beneficiaries. The deed excludes Mr Elliott (in his capacity as Trustee or Appointor) as a beneficiary of the Elliott Trust. By deed made 15 October 1992, Mr Elliott retired as Trustee and Brosberg Pty Ltd (“Brosberg”) was appointed as new Trustee. I note that it would appear (as Senior Counsel for Mr Elliott broadly accepted), that by virtue of his position as Appointor under the deed, Mr Elliott has the power, should he so wish, to take such steps (including the appointment of a new Trustee and the subsequent variation by such Trustee of the provisions of the deed) to control and make himself a beneficiary of the Elliott Trust.
Mr Elliott’s affidavit details how Brosberg (as trustee of the Elliott Trust) is the ultimate owner of a number of companies and businesses. Ebek Pty Ltd (“Ebek”) is the main entity through which the businesses of the Elliott Trust are operating. The affidavit provides some information as to the various businesses.
Brosberg (as trustee of the Elliott Trust) is the holder of all of the shares in Australian Portfolio Investments Pty Ltd (“API”). Mr Elliott is one of the directors of API. API is the beneficial holder of all the shares in Ebek. Mr Elliott is one of the directors of Ebek.
Ebek holds, directly or indirectly, 52% of the issued shares in an unlisted public company called KMN Limited (“KMN”). Mr Elliott is Chairman of Directors of KMN. KMN specialises in installing pagers and developing the software associated with paging systems, SMS messaging and Nursecall systems for hospitals and aged people’s homes. KMN employs approximately 20 people and has traded for 2 financial years, making a profit of approximately $100,000 in the 2001/2002 financial year.
Ebek is also the beneficial owner of 50% of the issued shares in Butt-Out Pty Ltd (“Butt-Out”), a private company that makes and markets disposal bins for cigarettes. Mr Elliott is a director of Butt-Out. Butt-Out has traded for 4 years and, for the first time this financial year, it will make an estimated profit of “less than $100,000”.
Ebek is also the owner of all of the shares in Australian Product Traders Pty Ltd (“APT”) which owns a business which operates in Romania. Mr Elliott is a director of APT.
Ebek owns 30% of the issued shares in Koshihikari Sushi Pty Ltd (“KS”). Mr Elliott is the Chairman of Directors of KS, which manufactures and supplies sushi to a range of supermarkets restaurants and caterers. Mr Elliott’s daughter, Caroline Elliott, is responsible for the day-to-day operation and management of KS.
Ebek owns 50% of the issued shares in Australian Rice Holdings Pty Ltd (“ARH”) which owned two large rural properties, which were recently sold by a receiver appointed to that company. Mr Elliott is one of the directors of ARH. For the current financial year, Ebek is likely to make a loss because it has written off the value of its investment in ARH.
Mr Elliott deposed that his personal involvement as an Executive Director of Ebek and APT was important to the continuing operation and success of those entities, which had been drawing on his detailed knowledge of their operations and the industries in which they operated. He said that he was the sole Executive Manager of those companies.
Mr Elliott said that his sources of income were Haoma (director’s fees of $40,000 per annum) and speaking engagements and other media appearances ($48,000 in this financial year). He also had a potential source of income as a director of Ebek and its various associated companies, but did not currently receive director’s or consulting fees therefrom.
Mr Elliott deposed that he was the registered proprietor of a residential property in Toorak. His estranged wife Amanda Elliott and their daughter Alexandra are living at this property and it is subject to a caveat lodged by Amanda Elliott after their separation in or about late 2001. The property is mortgaged to the ANZ Bank to secure a loan to Ebek in the sum of $2,934,845. The property contains personal effects and antiques owned by Mr Elliott and his wife which are insured to the value of about $2.35M. Negotiations between Mr Elliott and his wife in relation to the property, the personal effects and the antiques have been taking place over the last few months. Mr Elliott also owns a 25 hectare plantation property near Mount Gambier in respect of which he recently received an offer of $173,000. An appraisal of the value of the property was exhibited, suggesting a net present value taking into account the standing timber of somewhere between $370,000 and $418,000. He owns a 50% interest in a mare with a colt at foot valued at $50,000 which is also subject to the matrimonial negotiations. Mr Elliott deposed that apart from the foregoing, he owned no other assets.
Mr Elliott disclosed the following liabilities:
· $328,199.27 to the National Crime Authority in respect of a Federal Court costs order;
· Approximately $150,000 to the Commonwealth Director of Public Prosecutions (estimated costs yet to be taxed);
· Contingent liabilities pursuant to personal guarantees of all bank loans provided to Ebek by the ANZ Bank, the National Australia Bank and Suncorp-Metway and of the overdraft of KS in the sum of $100,000 from the National Australia Bank.
Mr Elliott said that, to the date of the affidavit, he had paid $906,345.07 in legal fees to solicitors, barristers and experts in order to defend this proceeding, and was continuing to incur further legal fees in this proceeding.
Mr Elliott said that he had no income or assets from which he could pay any substantial penalty or compensation order.
Mr Elliott said that he had received a great deal of adverse publicity in the local and national media throughout the hearing of this proceeding which had caused him a great deal of distress and had caused his family to suffer distress.
Mr Elliott also deposed that ARH had agreed to continue to supply rice (from its Victorian operations) to the purchaser of the rice mill at Bridgewater (Goodman Fielder Limited), thus enabling the rice mill to be sold at a substantially higher value.
Submissions made on behalf of second defendant (Mr Elliott)
It was submitted that Mr Elliott should be relieved pursuant to s.1317JA, wholly, or partly, from liability having regard to the following circumstances set out in written submissions:
“(a)The second defendant’s good character and unblemished record as a director, including the absence of prior contraventions of the Law (or its predecessors or successors).
(b)The second defendant’s sound understanding of his duties and responsibilities as a company director.
(c)The absence of a finding of dishonesty or other moral deficiency on the part of the second defendant.
(d)The absence of any contention that the second defendant acted to further his own interests.
(e)The appointment of an administrator.
(f)The second defendant assisted the administrators to enhance the prospects of success for the administration.
(g)The absence of any firm suggestion that the second defendant poses a danger to the public.
(h)As a non-executive director of Haoma Mining NL, the second defendant has discharged his duties properly, suggesting that he is a fit and proper person to manage companies.
(i)The second defendant’s expression of regret over the loss occasioned to the creditors of the two companies held to have been suffered when they were insolvent.
(j)The second defendant’s statement that he will act to avoid any behaviour of the type the subject of the contraventions.
(k)The fact that the amount owed to the creditors of the two companies decreased during the period in which they were insolvent.”
Mr Myers QC, who appeared with Mr Heath of Counsel for Mr Elliott, emphasised in particular a number of circumstances which he put as being relevant to the exercise of the Court’s power under s.1317JA and also as relevant to the other discretions which the Court was being asked to exercise. Mr Myers said that the administration had been very successful. The principal assets of Water Wheel had been realised for substantial sums totalling approximately $9M. In addition, the sale of the rice mill to Goodman Fielder could only have taken place with the assistance of ARH, which agreed to sell the whole of its Victorian rice supply to Goodman Fielder.
Mr Myers referred to the agreement which had been reached between the administrator and Vicgrain which had benefited the administration by a further $1M approximately and that there was still a potential action by the administrator against the auditors. Mr Myers also stressed Mr Elliott’s exemplary character and good record. He argued that it was a remarkable thing to suggest that Mr Elliott did not understand what his responsibilities were as a director, given his long and distinguished record of managing corporations, public and private. He said that the contraventions were not dishonest and that Mr Elliott was neglectful of his duties in certain respects, but not so as to favour his own interests above those of others. Further, he had subjected his own interests to those of the general body of creditors by undertaking not to prove in the administration, and by undertaking that his company and his associates would not prove in the administration, and by causing ARH to enter into a contract which enabled the rice mill to be sold favourably.
Mr Myers referred to the position of a non-executive director in relation to access to information about the affairs of a company, and contrasted that position with that of a Chief Executive.
It was further submitted that by reason of the above circumstances, Mr Elliott was a fit and proper person to manage a corporation and therefore no question of a prohibition order arose. Mr Myers contended that the evidence established quite plainly that Mr Elliott was a fit and proper person to manage a corporation, having regard to his education, experience, good character and the work he had done in many fields. Mr Myers submitted that there was no basis to find on all the evidence that allowing Mr Elliott to continue to manage companies posed some danger to the public, that being the most significant question in determining whether a person was a fit and proper and also in determining whether to make a prohibition order. It was put that, although Mr Elliott had failed in his responsibilities as a director, it was “an isolated incident”. Mr Elliott had made a mistake, but he was not a danger to the public. One instance of failure did not make him unfit. He had been too slow to act, but he was not an executive director and was not provided with adequate information by the Chief Executive and the Chairman. He had expressed his regret. The evidence showed that his conduct was atypical.
In the alternative, it was submitted that if a prohibition order was to be made, the period of disqualification should be for 3 months, or a few months rather than years. A long period of disqualification would create considerable financial hardship for Mr Elliott. A short period of disqualification would create a fair balance between the interests of the public (on the one hand) and the interests of Mr Elliott in earning an income and helping to manage the family businesses (on the other hand). Mr Myers said that a prohibition order for any substantial period would be ruinous to Mr Elliott. He had earned his living for over 30 years by the managing of companies and had no other means of livelihood and that, because of the position that he occupied in the family companies, his family would suffer as well. Mr Myers submitted that there was no serious risk of the behaviour which constituted the contravention recurring. As an intelligent, astute and honest man, he would not make the same sort of mistakes again. He had a real appreciation of his duties as a director and where he had failed in this case.
It was submitted that the Court should not impose any pecuniary penalty upon Mr Elliott by reason of the circumstances already referred to and the following additional circumstances:
· The second defendant’s capacity to pay any fine was limited – the penalties for which ASIC contended were punitive and excessive.
· The second defendant refrained from contesting a substantial body of evidence from the creditors of Water Wheel.
· The second defendant conducted his defence in a way that avoided the unreasonable prolonging of the proceeding, but the fact that he contested the proceeding should not be held against him.
Mr Myers argued that Mr Elliott had already been punished very greatly by the costs which he had incurred and the publicity which had attended every aspect of this proceeding. In addition, no personal deterrence was required and, as to general deterrence, ASIC had, through the publicity surrounding this proceeding, obtained “an enormous level of general deterrence”; alternatively, if the Court was minded to impose a penalty, it should not exceed in aggregate $20,000.
It was submitted that the Court should not order Mr Elliott to pay compensation pursuant to s.588J. It was put that there was no point in making a order with which he had no realistic hope of complying, and that, in substance, he had no income or assets out of which to meet any order exceeding, say, $20,000. In addition, the creditors had entered into deeds of arrangement for good reasons and for valuable consideration.
It was submitted in the alternative, and this was put at the forefront of Mr Myers’ argument on this topic, that the Court should defer making any compensation order until the loss suffered by the creditors had been clearly established, in particular because the administrator was still considering whether any proceedings should be taken against the auditors.
Mr Myers accepted ASIC’s submission that the Court had power to make orders for compensation in differing amounts against individual directors, although the more prudent course might be to utilise the power under s.1317JA having regard to the apparent difficulty with the interpretation of s.588J.
Finally it was submitted that there should be no order for costs in circumstances where ASIC was discharging its statutory responsibilities and where such an order would operate to further punish the second defendant.
Relief against the first defendant (Mr Plymin)
I am not satisfied under s.1317JA of the Law, having regard to all of the circumstances of the case and in the light of the submissions made, that Mr Plymin ought fairly to be excused for his contraventions. He should not pursuant to that section be relieved either wholly or partly from any liability. In relation to Mr Plymin, I accept in substance the submissions advanced on behalf of ASIC.[47] I am satisfied in light of the findings in the primary judgment and upon all the evidence that the relevant contravening conduct of Mr Plymin was in all the circumstances unreasonable and inexcusable. His conduct was reckless and grossly negligent. It showed no regard for the position of those who dealt with Water Wheel from 14 September 1999 onwards. The appointment of administrators came far too late. I am not satisfied that, even now, he truly understands the nature of a director’s duties or the seriousness of his contraventions.
[47]See para [19] above; see also para [22] above.
Appropriate declarations as to Mr Plymin’s contraventions will be made. Strictly speaking, there will have been a separate contravention each time a debt was incurred in the relevant period. As some of the total debts due to relevant creditors are in fact constituted by a number of debts incurred on separate occasions, there will have been a number of contraventions in relation to some creditors. It was common ground that, for the purpose of any declarations against a defendant, it was sufficient to identify the total debt in respect of each creditor. It was also common ground that, for the purpose of any prohibition and pecuniary penalty orders, it was appropriate to treat the defendants’ conduct as constituting one continuing contravention in relation to Mills and one continuing contravention in relation to Holdings.
I am not satisfied that Mr Plymin is a fit and proper person to manage a corporation. In order to protect the public and those who deal with corporations, a prohibition order should be made. I accept in substance the submissions made by ASIC.[48] Taking into account all of the positive matters and the submissions advanced on Mr Plymin’s behalf, he should nevertheless be prohibited from managing a corporation for a period of 10 years commencing on 28 July 2003. The protection of the public is the paramount objective.
[48]See paras [22] – [23] above.
In relation to compensation, it is first necessary to calculate the amount of the loss or damage suffered by creditors in relation to whom debts were incurred on and after 14 September 1999. A number of aspects relevant to this calculation were dealt with in Part IX of the primary judgment.[49] ASIC provided a calculation, which was not challenged, showing that, after allowing for a total distribution of 14.5 cents in the dollar, the loss or damage in relation to relevant creditors of Mills is $1,610,186.10, say $1.61M. ASIC also provided a calculation, which was not challenged, showing that, after allowing for a total distribution of 90 cents in the dollar, the loss or damage in relation to relevant creditors of Holdings was $148,016. However, on the evidence, I think that this calculation should be made by allowing for a distribution of 92 cents in the dollar. The revised amount is $118,412, say $118,000.
[49]See ASIC v Plymin, Elliott & Harrison [2003] VSC 123 at paras [463] – [542].
I am therefore satisfied that, for the purposes of s.588J of the Law, the relevant amounts of loss and damage in relation to Mills and Holdings are $1.61M and $118,000 respectively. The other prerequisites contained in s.588J(1) have been satisfied. In my opinion, it is in all the circumstances just and appropriate that orders should be made against Mr Plymin requiring him to pay compensation to Mills and Holdings in the following amounts:
Mills
$1,610,000.00
Less compensation to be paid by Mr Harrison to Mills (see below)
- $279,513.89
Amount of compensation for Mills
$1,330,486.11
Holdings
$118,000.00
Less compensation to be paid by Mr Harrison to Holdings (see below)
- $20,486.11
Amount of compensation for Holdings
$97,513.89
As to pecuniary penalty, as I have made clear, I am satisfied that his contraventions are serious contraventions. However, in all the circumstances and, additionally, having regard to the length of the prohibition order, the size of the compensation order and the order as to the very substantial costs of ASIC which I propose to make, a relatively small pecuniary penalty should be sufficient primarily to serve the interests of deterrence, namely $25,000 ($20,000 in relation to Mills and $5,000 in relation to Holdings).
Relief against the second defendant (Mr Elliott)
I am not satisfied under s.1317JA of the Law, having regard to all the circumstances of the case and in the light of the submissions made that Mr Elliott ought fairly to be excused for his contraventions. He should not pursuant to that section be relieved either wholly or partly from any liability. Save that I consider that Mr Elliott was significantly less culpable than the Managing Director, Mr Plymin, and less culpable than the Chairman, Mr Harrison, I accept in substance the submissions made by ASIC in relation to Mr Elliott.[50] In all the circumstances, Mr Elliott’s contraventions were serious and represent a sustained and continuous course of inexcusable and unjustifiable neglect of important duties of a non-executive director. I do not accept Mr Myers’ submission that Mr Elliott’s conduct was “an isolated incident” or a “mistake”. In my opinion Mr Elliott showed continuing disregard for the position of unsecured creditors given his awareness of grounds for suspecting insolvency. The appointment of administrators, as I have said, came far too late.
[50]See paras [19] – [20] above; see also paras [24] – [25] above.
Appropriate declarations as to Mr Elliott’s contraventions will be made.
The evidence of Mr Elliott’s achievements and the favourable evidence from some highly experienced and reputable businessmen concerning Mr Elliott’s performance as a company director in the past and concerning his implementation of the responsibilities of a director in relation to other companies stand in stark contrast to the circumstances disclosed by the evidence in this proceeding. His course of conduct in relation to Water Wheel occurred recently and his evidence in this proceeding concerning that conduct, including his explanations of it and attitude towards it, did not engender any confidence in the Court as to his present fitness to act as a company director. Nor do the references in his affidavit to what “befell” Water Wheel or the material in his affidavit concerning his present understanding of the responsibilities of a company director redress such lack of confidence. His affidavit evidence was, to adopt language used in another case,[51] somewhat “formulaic and mechanical”. In the light of my findings in the primary judgment and considering all the evidence now before the Court and after taking account of the submissions made on his behalf, I am not satisfied that Mr Elliott is a fit and proper person to manage a corporation. In order to protect the public and those who deal with corporations, a prohibition order should be made. In relation to the period of disqualification, I take into account his relative culpability and the positive matters advanced in his favour[52] and I have had regard to the prejudice and hardship which may be caused in relation to the various family businesses by such an order. I also take into account considerations of deterrence (in particular, personal deterrence). I consider that Mr Elliott should be prohibited from managing a corporation for a period of 4 years commencing on 28 July 2003. Anything less would not be an appropriate measure of protection of the public.
[51]ASIC v Doyle [2002] WASC 223, at para [71] per Roberts-Smith J.
[52]For example, see Items (a), (c), (d), (f), (h) in para [89] above and the matters relating to assistance of the administrators and the administration.
In relation to compensation, in all the circumstances I am satisfied that it is just and appropriate that Mr Elliott should be ordered to pay compensation to Mills and Holdings pursuant to s.588J(1) of the Law in the same amounts as to be ordered against Mr Plymin, namely $1,330,486.11 to Mills and $97,513.89 to Holdings.
As to pecuniary penalty, I am satisfied that Mr Elliott’s contraventions were serious contraventions. However, in all the circumstances, and particularly having regard to the effect of the prohibition order, the size of the compensation order and of the order as to the very substantial costs of ASIC which I propose to make, a relatively modest pecuniary penalty should be sufficient, primarily to serve the interest of general deterrence, and also personal deterrence, namely $15,000 ($13,000 in relation to Mills and $2,000 in relation to Holdings). I think that any lesser pecuniary penalty would be trivial having regard to the serious contraventions proved in this proceeding.
Relief against the third defendant (Mr Harrison)
Appropriate declarations as to Mr Harrison’s contraventions will be made.
I am not satisfied that Mr Harrison is a fit and proper person to manage a corporation. A prohibition order should be made against him. The Court is not bound by any agreement between ASIC and Mr Harrison, or by matters advanced in the joint submissions (as was acknowledged). In relation to the period of disqualification, I do not accept that a period at the lower of end of the range of 4 to 6 years is an adequate order having regard to the paramount object of the protection of the public and of those dealing with corporations and in the light of the evidence concerning Mr Harrison’s serious dereliction of duty. Furthermore, given that Mr Harrison has stated his intention not to act again as a company director, a more appropriate period of disqualification will cause no real hardship to Mr Harrison, while providing a proper reflection of the seriousness of his contraventions. It will be ordered that Mr Harrison be prohibited from managing a corporation for a period of 7 years commencing on 28 July 2003.
In relation to compensation, given that pursuant to the agreement between ASIC and Mr Harrison the sum of $300,000 (being the bulk of Mr Harrison’s available assets) has been paid to ASIC, in effect to abide any order in this proceeding, it is appropriate to order and it will be ordered that Mr Harrison pay compensation totalling $300,000 to Mills and Holdings, calculated in proportion to the respective amounts of loss and damage as follows:
Mills: $300,000 x $1,610,000 = $279,513.89
$1,728,000
Holdings: $300,000 x $118,000 = $20,486.11
$1,728,000
Having regard to the admissions made by Mr Harrison and his cooperation with ASIC and to the fact that the said sum of $300,000 is to be applied entirely for the purposes of compensation, no orders will in the circumstances be made against Mr Harrison as to any pecuniary penalty or as to costs.
Costs
In my view, there is no discretionary reason why the usual order which is made in civil proceedings, namely that costs should follow the event, should not be made in this proceeding. I do not think that the fact that ASIC was exercising its statutory powers and responsibilities is a reason for denying to it a costs order. Even assuming that either of the first and second defendants has demonstrated an incapacity to meet any substantial order for costs, I do not regard that of itself as a reason to deny to ASIC such an order. Apart from anything else, even if the first and second defendants were presently unable to meet a costs order, one or other of them might well be able to do so in the future. The same comment is applicable to the compensation orders.
I think that such an order as to costs, rather than being oppressive, is fair and reasonable in all the circumstances. The defendants vigorously defended the case, but were unsuccessful. The first and second defendants should each be ordered to pay 80% of ASIC’s costs of this proceeding (including reserved costs). It is so ordered because the proceeding was extended by the presence of two defendants and so it is appropriate that neither of them should be required to pay more than 80% of ASIC’s costs. It is of course, as in any case, a matter for ASIC from whom and to what extent the costs so limited (up to 100% in total) are recovered. I would assume that ASIC will give preference to the recovery of the full compensation ordered in favour of Water Wheel in priority to any recovery of its own costs.
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